The Crock Of Shit At The End Of The Rainbow – Why Pensions Aren’t As Sensible As They Seem And What Alternatives You Can Provide For Yourself
Twenty five years old. That’s the age when the hum drum realities of life start to tap you on the shoulder. If you don’t turn around to face them, they get you in a neck lock and wrestle you to the ground and then you’re screwed. Twenty Five is the point at which you start to think about your future. You start to hear yourself say things like “Twenty five. That’s a quarter of a Century” and “Twenty five. That’s halfway to Thirty”. Then, if you are a clearer and more mathematically minded thinker, you realise that Twenty Five is in fact five sixths of the way to Thirty. Mild panic sets in and you start to consider doing something sensible with your life, and by your life I mean your money.
When most people think of sensible things to do with money, they think of pensions. I have never quite understood this. Investing your money in a pension scheme is one of the most fiscally reckless things you can possibly do. They are not called “schemes” for no reason.
Would you think it sensible to get up every morning and gamble with your savings for twelve hours a day? This is exactly what you are doing if you have a pension. Most people think of a pension as putting your money into a pot, where some mysterious force sprinkles a bit more cash on it on a regular basis. When you retire, you carry away your money pot and it sees you through your frail dotage. The financial services industry even uses the term “pension pot”. This is not how pensions work.
When you set up your pension, you hand over your money to a professional gambler. There is a pot of sorts, in the same sense that there is a pot in a game of poker. What you hand over is, in fact, stake money. Your hired gambler may win or he may lose, but he will never run out of chips because you furnish him with fresh ones every month out of your salary. And every day, your personal gambler wagers your financial future on the stock markets until it’s time for you to retire. When it is time for you to retire, whether he has done well for you or badly, you have to buy your own money back from him. Now, call me old fashioned, but I just can’t see how this is a sensible way to invest your money.
If you are twenty five – or in fact any age- for fuck’s sake do not “invest” in a pension. Particularly do not get involved in The Government’s Workplace Pensions programme. It’s just another stealth tax. Opt out of it post haste or you’ll never see that money again. Besides, by the time you retire, there’ll probably be no such thing as pensions anyway. They’ll have been consigned to the dustbin of history as a good idea that became financially unsustainable. In fact there’ll probably be no such thing as retirement. We’ll all be expected to work until we drop.
So here’s what to do with your cash in the meantime. Put it into ISAs and similar financial products. As many as you are legally allowed to. When they mature, put them into your own personal money pot. If you’re confident of your income, put some of that money pot into long term, high yield bank bonds. Only if you’re feeling daring though. If a bank bond has a ten year term before it matures, you can’t touch a penny of it until that ten years is up. Hell, even just putting your money into a savings account or stuffing it under your mattress is a better bet that a pension.
If you do have a pension, particularly a company one, there is no crock of gold at the end of the rainbow. If the people investing your money are unscrupulous enough, there may not even be a crock of shit at the end of the rainbow. At least manure has some sort of resale value. It could be that all you find is a note saying “We’re sorry, but we’ve spent all your money. We suggest you and your friends club together and launch a lengthy and expensive class action suit to attempt to get a fraction of your cash back. Love, the Pension People. Xxx”
All of this advice does of course rely on the banking system remaining intact. There is no guarantee of this. We came within hours of it collapsing back in 2008. Just like we’ve come close to nuclear Armageddon on several occasions.
Nikita Kruschev famously said : “I don’t know what weapons World War III will be fought with, but World War IV will be fought with sticks and stones.” I don’t think World War III will be fought with guns or tanks or nuclear weapons. It will be a battle to keep the idea of money alive. Money isn’t a real thing, it’s just an idea. It wouldn’t take much to pop that bubble and take us to the “Lord of the Flies” social model. So invest your money – but not in pensions- and keep a good collection of sticks and stones handy. Just in case.
© Copyright Michael Grimes 2013